1 week ago
IBBI Ends Moratorium Protection for Pending Personal Guarantor Cases
Some people promise to repay a company’s loan if the company cannot pay.
These people are called personal guarantors.
Earlier, filing for insolvency could temporarily stop lenders from taking certain legal steps against them.
A new rule removed that temporary protection.
The rule also applies to cases that were already waiting for a decision.
This means lenders can continue recovery proceedings while those cases are pending.
Banks and other lenders support the change because it may make guarantees easier to enforce.
Personal guarantors and their advisers may view it as a loss of protection.
The interim moratorium protecting personal guarantors from certain lender actions ended on May 26, 2026.
The change applies to Section 95 insolvency applications that were pending before the National Company Law Tribunal on that date.
The Insolvency and Bankruptcy Board of India said lenders may resume recovery proceedings against affected guarantors.
The clarification follows Bombay and Delhi High Court rulings that the amended insolvency law applies to pending cases.
The decision benefits banks and other lenders while giving insolvency professionals clearer authority to proceed with cases.
- Who
- The Insolvency and Bankruptcy Board of India, lenders, insolvency professionals and personal guarantors.
- What
- The interim moratorium for personal guarantors in pending insolvency cases has ended.
- Where
- In insolvency applications pending before the National Company Law Tribunal in India.
- When
- The moratorium ceased to operate on May 26, 2026.
- Why
- A 2026 amendment to the Insolvency and Bankruptcy Code removed the moratorium, and court rulings said the change applies to pending applications.
Lender and Insolvency Professional Position
Personal Guarantor Position
Effect of the moratorium change
Lender and Insolvency Professional Position
Lenders can resume recovery proceedings, and insolvency professionals can proceed without treating the former moratorium as a reason for delay.
Personal Guarantor Position
Personal guarantors lose a temporary legal shield that previously restricted certain lender actions while their insolvency applications were pending.
Purpose of the amendment
Lender and Insolvency Professional Position
The change prevents personal guarantors from using insolvency proceedings as an immediate shield against recovery and gives personal guarantees greater enforcement value.
Personal Guarantor Position
The removal of protection increases enforcement risk for guarantors before their insolvency applications have been decided.
Key facts
- Effective date
- May 26, 2026
- Affected cases
- Section 95 applications pending before the adjudicating authority on that date
- Relevant provisions
- Sections 96 and 124 of the Insolvency and Bankruptcy Code
- Affected guarantors
- Individuals who personally guaranteed corporate borrowings, including promoters and directors
- Benefiting parties
- Banks, non-banking financial companies, debenture trustees and other lenders
- Cited cases
- Tata Capital Financial Services versus Neel Motors LLP and IDBI Trusteeship Services versus Manish Jain
- Court rulings
- Bombay High Court and Delhi High Court rulings supported applying the amendment to pending cases
Quotes
Devendra Mehta
Fellow of INSOL International
“Section 96(4) is a newly-inserted section in the IBC which is intended to stop personal guarantors from using insolvency proceedings as an immediate shield against recovery. Previously, the filing of such application could pause legal action by lenders. The amendment removes that automatic protection from May, including in pending cases.”
financialexpress.com
“This development is particularly relevant where a personal guarantor continues to rely on the earlier moratorium to oppose or delay proceedings by creditors. For IPs, it will empower them to proceed with such cases and not allow a guarantor to use the moratorium as a ground to delay proceedings.”
financialexpress.com
Insolvency and Bankruptcy Board of India
India’s insolvency regulator that issued the clarification
“It may be noted that the interim moratorium under section 96 (and, correspondingly, section 124) of the Code, in respect of a personal guarantor to a corporate debtor, has ceased to operate with effect from 26th May, 2026 in respect of applications pending before adjudicating authority as on that date.”
financialexpress.com
Sources
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